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What Retailers Need to Know About NFC Payment Systems

Contactless payments with RFID credit cards haven't taken off, but mobile phones with Near Field Communication technology are on the verge of breathing new life into "tap, pay and be on your way"—and promise to deliver more benefits than just speeding shoppers through checkouts.

May 10, 2010—Five years ago, RFID-enabled credit cards, issued by American Express, MasterCard and Visa, promised to transform consumers' spending habits and open new opportunities for retailers. To make a purchase, shoppers would just need to wave an RFID credit card by an in-store RFID interrogator. These contactless payments—especially for high-volume, typically cash purchases such as fast food, movie tickets and gasoline—would streamline the checkout process, improving customer satisfaction, and increase sales by enabling businesses to serve more people during peak periods.

But consumers and retailers, particularly in the United States, haven't embraced contactless payments for retail purchases (contactless payments for transit systems are popular in Asia and Europe). One reason: The financial institutions that issue RFID credit cards haven't promoted them sufficiently. Another: Many retailers that adopted contactless payment systems haven't offered consumers incentives to use RFID cards or trained their clerks to manage contactless transactions.

Photo: iStockphoto

vAs a result, most retailers that invested in contactless equipment haven't seen a return on their investment. And retailers that need to replace aging point-of-sale (POS) systems, for Payment Card Industry (PCI) security compliance or other reasons, want to know what to expect in terms of ROI before they take the plunge.

Here's why it makes sense to invest in a contactless payment solution—and why retailers that have already bought in will soon be able to put their systems to more use: The next-generation contactless payment platform is the mobile phone. While people often leave home without cash or credit cards, they rarely venture out without their phones, which they rely on for everything from talking and texting to gaming and Web surfing. And numerous studies have found that consumers also like to use their mobile phones to make cash payments.

A pilot conducted by Citibank in Bangalore, India, for example, revealed that consumers use their mobile phones to pay for purchases at a higher rate than consumers using conventional credit cards. The Citi Tap and Pay project, launched in June 2009 and slated for completion in early 2010, involved approximately 3,000 consumers and 250 merchants.

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